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Discussion Starter · #1 · (Edited)
Hi all,

I use a fairly simple method for calculating my annual time-weighted portfolio return. I came up with the method on my own and it makes intuitive sense to me, but I wanted to run it by others to make sure I'm not missing anything. I tend to make contributions monthly to my portfolio.

By way of example, here is my method:

Say, Jan 01/21, I had $100K in my portfolio. On June 30/21, I put in another $100K into my portfolio as a new contribution. On Dec 31/21, when I calculate my annual return, I have $250K total in the portfolio (having had a good year in the market).

I would calculate the June 30th contribution's weight by pro-rating the number of days it has left to grow in the year (assume June 30th is exactly mid-year, for simplicity), so $100K x 50% of year remaining = $50K.

Then, I'd add that $50K to the initial starting principal of $100K to get an adjusted figure of $150K invested for the entire year.

For my gain amount: I contributed $200K total and the portfolio value at year-end is $250K, so it's a $50K gain.

Finally, 50K/150K = 33% growth.
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It's simple and makes sense to me, but as mentioned above, I've never actually consulted others to confirm that this method is sound. The other time or money-weighted methods I found online seem considerably more complex to calculate.

Thoughts and insight would be much appreciated.

Franko
 

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Say, Jan 01/21, I had $100K in my portfolio. On June 30/21, I put in another $100K into my portfolio as a new contribution. On Dec 31/21, when I calculate my annual return, I have $250K total in the portfolio
You can't calculate the TWRR without knowing the portfolio value at the moment you contributed $100k on June 30/21.

Your initial $100k must have grown to exactly $114,285.71 on June 30/21, the day you added $100k and then that $214,285.71 must grow to exactly $250k at the end of the year and that's the only way to get to a TWRR of +33.33% from your example.

It's simple and makes sense to me
TWRR means you calculate your return from point A to point B then from point B to point C and so on, and you compound it.

$100k to $114,285.71 = +14.28571%
$114,285.71 + $100k = $214,285.71
$214,285.71 to $250k = +16.66666%

1.1428571 * 1.1666666 = 1.3333333
+14.28571% compounded with +16.66666% = +33.33333%
 
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Just become the sole investor in your own mutual fund. Start with a $10 unit price. Buy 10,000 units with the 1st $100,000 dollars. Divide the value of your portfolio by the 10,000 units to keep track of the change in unit price every day, month or year. Whenever you want to invest or withdraw more money simply buy and sell units at whatever price they are at the time you do it.

Then calculate your rate of return by measuring the change in unit price over any time frame.
You can keep all this on a different page of your spreadsheet, to be used solely for rate of return calculations or more evident on the main page, whatever you prefer.

It is a time tested method for calculating returns and has worked for the mutual fund industry for decades and worked for me for a long time as well. It can't get any simpler then that.
 

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Hi all,

I use a fairly simple method for calculating my annual time-weighted portfolio return. I came up with the method on my own and it makes intuitive sense to me, but I wanted to run it by others to make sure I'm not missing anything. I tend to make contributions monthly to my portfolio.

By way of example, here is my method:

Say, Jan 01/21, I had $100K in my portfolio. On June 30/21, I put in another $100K into my portfolio as a new contribution. On Dec 31/21, when I calculate my annual return, I have $250K total in the portfolio (having had a good year in the market).

I would calculate the June 30th contribution's weight by pro-rating the number of days it has left to grow in the year (assume June 30th is exactly mid-year, for simplicity), so $100K x 50% of year remaining = $50K.

Then, I'd add that $50K to the initial starting principal of $100K to get an adjusted figure of $150K invested for the entire year.

For my gain amount: I contributed $200K total and the portfolio value at year-end is $250K, so it's a $50K gain.

Finally, 50K/150K = 33% growth.
------------

It's simple and makes sense to me, but as mentioned above, I've never actually consulted others to confirm that this method is sound. The other time or money-weighted methods I found online seem considerably more complex to calculate.

Thoughts and insight would be much appreciated.

Franko
I came up with 29.28355% annual growth.

I used a spreadsheet for all 365 days in the year. Daily interest calculated on the previous day's balance compounded daily. It's an iterative process because there is no way I could come up with an all inclusive equation that takes into account of scattered contributions and withdrawals on random dates.
 

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Who has time to calculate all the balances every day ? then record it all ?

Not gonna happen .... if you have $10,000 sure its doable, but not worth the energy. If you have 10 accounts with a few million, its way to much of a hassle !

Yearly I track my starting balances, contributions, and ending balances, the difference is my growth or loss... then take that and divide it into the starting balance and convert to a %. Done, while it is not completely accurate, it gives a good idea....
 

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You don't calculate the balance everyday. The spreadsheet compounds the daily interest into the balance automatically. As you saw, it only took me a few minutes to do the calculation for the entire year.
 

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Discussion Starter · #8 ·
Thanks for the tips and suggestions everyone. After reviewing MWRR vs. TWRR, I think MWRR makes more sense for me, as it gives me more of a real-world idea of how my portfolio is doing. I'll aim to use the WealthySavvy MWRR calculator going forward to calculate my returns for me.
 

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Yes, MWRR is better.
 

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If you are not adding or withdrawing funds from the accounts, then MWRR and TWRR will be the same for the measured time period. The smaller your deposits or withdrawals are, relative to the account value, the smaller the potential difference between MWRR and TWRR will be.

If you are not an active investor and are benchmarking your portfolio results against an index or against other investments (like mutual funds or ETFs) then TWRR is the appropriate comparison.

If you feel you are a very skilled investor and you are adding funds to your portfolio to time the market, and you want to measure your success doing that, then MWRR is a better choice.

Note that for calculating returns, dividends and distributions that are not withdrawn must be ignored.
 
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